1. Exit PPC and Economic Gowth GDP & Rational Expectations 100 100 100
Inflation and Unemployment
GDP & Rational Expectations
Short vs. Long-Run and Phillips Curve
Nominal and Policy Mix
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200
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Exit

2. PPC & Eco. Growth for 100
If a certain combination of goods and services lies outside the PPC of an economy, what must be true?
Resources are not available to achieve that combination of goods and services
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3. PPC & Eco. Growth for 200
An increase in which of the following will most likely promote economic growth?
Consumption, investment tax credits, real interest rates, the trade deficit?
Investment Tax Credits. This would result in new technology being employed and the PPC shifting to the right.
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4. The supply of all resources was unlimited.
PPC & Eco. Growth for 300
The concept of opportunity cost would no longer be relevant if ___________________.
The supply of all resources was unlimited.
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5. PPC & Eco. Growth for 400
What would happen to the PPC, LRAS, and Long-Run Phillips Curve if economic growth had occured?
The PPC and LRAS would shift to the right and the LRPC would shift to the left.
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6. PPC & Eco. Growth for 500
What factors will shift the PPC and LRAS to the right and Long-Run Phillips Curve to the left?
Using new and improved technology, more economic resources, or international trade to acquire those resources or technology.
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7. Inflation/Unemployment for 100
What groups would be hurt most by unanticipated inflation?
Savers, lenders with fixed rate loans, and people on fixed incomes (and with inadequate COLAS)
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8. Inflation/Unemployment for 200
What does a person have to be doing in order to officially count as being unemployed?
They have to be currently looking for employment.
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9. Inflation/Unemployment for 300
What type of unemployment is characterized by losing your job due to a recession?
What type of unemployment is characterized by leaving a job to pursue other employment?
What type of unemployment is the result of a lack of skills in demand by employers?
Cyclical
Frictional
Structural
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10. Inflation/Unemployment for 400
If the population is 180, the number of employed is 94, the unemployed is 6, and those not in the labor force total 80, what is the unemployment rate?
6.0% (6/ x 100)
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11. Inflation/Unemployment for 500
When an economy is at full-employment and there is a decrease in the real rate of interest, what type of inflation would occur?
If a negative supply shock, such as an increase in energy prices occurred, what type of inflation would occur?
What is the common name for the inflation in part 2 above?
Demand-Pull Inflation (AD curve shifts right)
Cost-Push Inflation (SRAS shifts left)
Stagflation.
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12. GDP/Rational Expectations for 100
True or False: If a foreign company builds a plant in the U.S., that investment adds to GDP?
True
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13. GDP/Rational Expectations for 200
If in one year, spending on C, I, and G totaled 103% of GDP, what must be true?
Net Exports (Xn) must be negative.
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14. GDP/Rational Expectations for 300
If nominal GDP were $1,200 and the GDP
Deflator or Price Index were 115, what
would real GDP be?
(nominal GDP x 100/Price Index)
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15. GDP/Rational Expectations for 400
Under the Rational Expectations Theory, an announced expansion of the money supply will change nominal and real GDP in which ways?
Nominal GDP goes up as M goes up. However, it is believed by Rational Expectations Theorists, that real output or real GDP will be unaffected as investors will take positions in the market to offset actions by the Fed.
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16. GDP/Rational Expectations for 500
Does the construction of a new home count in GDP?
If so, where?
Yes
In I.
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17. SR v. LR and Phillips Curve for 100
If an economy is facing the condition shown below, what is true about the long-run equilibrium of the economy depicted?
LRAS PL AS AD
GDPr
As wages and other input costs increase, the per-unit cost of production would go up and the SRAS will shift to the left to restore long-run equilibrium.
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18. SR v. LR and Phillips Curve for 200
An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and the price level would occur in the long-run?
The AS curve would shift to the right to restore long-run equilibrium as wages and other input costs decline due to the recession and as such, the per-unit cost of production would go down and output would increase and the PL would decrease.
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19. SR v. LR and Phillips Curve for 300
An increase in AD would have what affect on the Short-Run Phillips Curve?
Movement up the Short-Run Phillips Curve. (to the left)
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20. SR v. LR and Phillips Curve for 400
The Short-Run Phillips Curve shows what kind of relationship?
An inverse relationship between inflation and unemployment.
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21. SR v. LR and Phillips Curve for 500
What is the shape of the LRPC?
Why is it shaped that way?
If the natural rate of unemployment decreases, which way will the LRPC shift?
If the natural rate of unemployment increases, which way will the LRPC shift?
vertical.
Because studies have shown that in the LR (over decades), there is no relationship between the unemployment rate and inflation rate.
Left.
Right.
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22. Nominal/Policy Mix for 100
If the economy is at full-employment and policmakers want to maintain the price level, but encourage greater investment, which combination of monetary and fiscal policy actions would best achieve that goal?
Monetary Policy Fiscal Policy
a) No Change Contractionary
b) Expansionary No Change
c) Expansionary Contractionary
d) Expansionary Expansionary
e) Contractionary Expansionary
C. The expansionary monetary policy will increase the money supply, decrease interest rates, and that would increase borrowing for investment spending by businesses. The contractionary fiscal policy would reduce the demand for loanable funds by the government, decrease interest rates, and encourage borrowing. The expansionary monetary policy would increase AD and PL, while the contractionary fiscal policy would offset by decreasing AD and the PL.
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23. Nominal/Policy Mix for 200
If the average PL goes up by 10% in a year, what must also goe up by 10% for real output to remain the same?
Nominal National Income. Nominal Income or wages must go up in order the purchase the output at increased prices.
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24. Nominal/Policy Mix for 300
If the nominal interest rate is 12% and the expected inflation rate is 5%, then the real interest rate must be?
7%.
The real interest rate (r%) = nominal interest rate (i%) minus inflation %
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25. Nominal/Policy Mix for 400
Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. How will these combined actions affect real GDP and interest rates?
GDPr will increase as the decrease in taxes (fiscal policy) and decrease in the discount rate (monetary policy) will both increase AD. However, the change in interest rates is indeterminate. This is because the decrease in the discount rate will increase the money supply, increase the supply of loanable funds, and decrease the real interest rate, while the decrease in taxes will move the nation toward a budget deficit and cause an increase in the demand for loanable funds, thus increasing real interest rates.
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26. Nominal/Policy Mix for 500
Increasing government spending and decreasing the federal funds rate would be effective in fighting recession or inflation?
recession.
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